Saturday, April 20, 2013

Updates on: HOGS, LIFE and STZ

I’m back in Zhongpin, Inc. (Ticker: HOGS) at $12.85. This company is
currently going through the process of a management buyout for $13.50. It’s been
a long process, but it looks like the end is near. The SEC is currently
reviewing the preliminary proxy statement. I believe the SEC will give the go
ahead with the definitive proxy statement in April and a potential
closing in late May or early June. I’m looking at a potential net gain of ~ 5.06%
(annualized return of 24.95% assuming a June 30th closing).

I’m pleased with Thermo Fisher Scientifics’ (Ticker: TMO) $76 bid for Life
Technologies (Ticker: LIFE). I picked up more Life Technologies on April 3rd at
$65.59 and looking at a net gain of 15.87% (annualized return 18.79%) from that
purchase. The downside of this deal is that it is going to take a long time to
close. I’m using a closing date of January 31st, 2014 in my
annualized return calculations. I’ll probably hang on until the closing unless
I find some more appealing opportunities during this time.

Finally, Anheuser Busch InBev (Ticker: BUD) and the DOJ have reached an
agreement making Constellation Brands (Ticker: STZ) the 3rd largest brewer in the US. This is a
big win for Constellation Brands and it’s going to benefit tremendously from
this deal. This deal in which Anheuser Busch acquires Modelo SAB and sells
assets to Constellation Brands is expected to close in June. I’m going to hold
onto Constellation Brands for the long term.

7 Comments:

I think the shareholders may our real well on LIFE merger. There are some pretty interesting stories out on how they deal went down. Check out the SEC PREM14a filing in about a month for the details. Yes, we don't like the far out closing date but do like the arbitrage spread currently being offered. Thank You for sharing comments on your blog along the way. Much appreciated.

So TMO has not only picked up genetic sequencing but has virtually eliminated a competitor for consumables. TMO will be a real powerhouse in their space. How does this merger impact the other players? Do you see a potential Danaher target in the making?

Good job on the STZ call. We hope the street recognizes the value and the stock price moves from bottom left to the top right of the stock chart.

In regards to OPTR do you have access to public drug sales? I remember years ago analysts would review public sales data for existing and new drugs via some industry database. I am just wondering how sales growth projections for DIFICID are tracking. OPTR's auction has to be getting close.

In regards to BMC Software (BMC) final bids are due Monday 4/22/13 with two PE firms (KKR/TPG/Thomo and Bain/Golden Gate Capital) in the running. I predict BMC will go private at $48 cash or slightly higher. Target announcement date Monday 4/29/13. My backup date would be Monday 5/06/13. BMC earnings report is scheduled for Tuesday 5/07/13 after market close.

The R&D consumables business is highly fragmented with many niche players so it will still be a very competitive space with numerous private and public players. Competition will still be intense, but it will be easier for R&D players (i.e. big pharma) to go to just Thermo for many of their needs. Sigma Aldrich definitely needs to find a target so it can compete with Thermo in size. I can see Qiagen get taken out by someone. Danaher is really focused on instrumentation than pure consumables so I can see them making a run on some of the instrument companies such as Hologic, Cepheid (just a wild guess)...

I don't have any info on the monthly script data for Dificid. You're probably referring to the IMS script data.

I forgot all about OPTR and BMC. Definitely need to keep an eye on those. Thanks...

Post LIFE merger news I just wanted to circle back on the next possible plays in this space. After reading the text below what is your opinion on the next play we could focus on? What are you hearing or reading in your industry blogs to support any opinion?

The dust from Thermo Fisher Scientific's (TMO) USD 15bn acquisition of Life Technologies (LIFE) is just now settling, yet talk has already turned to future deals in the life science tools space. Leading today's discussion is Goldman Sachs analyst Isaac Ro, who wrote yesterday that the "most important implication of [the LIFE] transaction will be acceleration in M&A activity in tools." Building on that thought, Ro writes: “If consummated, TMO would have a pro forma revenue base of USD 16.9bn making TMO the largest industry player by a wide margin: 2.4x bigger than Danaher (DHR), 3.8x bigger than VWR (private), 4.3x bigger than Agilent (ex-EMG), and 6.2x bigger than Sigma-Aldrich (SIAL). As such, we think competitors will need to compensate for TMO’s materially increased scale advantage. We think this market force will be particularly potent given the backdrop of depressed end market growth rates tied to government austerity.”Of course the name on that list that’s most interesting is DHR, which has ample capacity to make a big deal but has been relatively quiet on the deal-making front since it paid nearly USD 7bn for Beckman Coulter in 2011. That deal significantly boosted DHR’s presence in life sciences and diagnostics and there‘s been a thought that CEO Larry Culp would look outside of this space for his next big deal. But that view has seemingly softened lately and in light of Ro’s remarks, we will be watching to see if DHR reacts to TMO’s strike.

Here is a new potential deal pending. My one perplexing question would be, why buy a company with a $12.9B MCap and $18.69B EV (Cash = $328m and debt = $6.43B)? The potential buyer here already has $11.03B in debt?

There's not many publicly traded R&D tool companies out there. Obviously Sigma Aldrich is out there looking for a target. I think Qiagen may become a target for someone. I have a position in Qiagen, which I've held since it's IPO.

I came across this news today on LIFE. Lets hope China does its job in a timely matter.

"The proposed $13.6 billion acquisition of Life Technologies Corp. by Thermo Fisher Scientific Inc. faces few substantive regulatory hurdles, but the companies warn regulatory approval might not come until January 2014. Analysts said that's because of uncertainty about the timing of overseas antitrust approvals, particularly from China. We like the additional price increase of .06 cents per day penalty.

"The companies announced their plans to merge on April 14, with Thermo Fisher agreeing to pay $76 per share in cash. According to the companies' agreement, if failure to obtain necessary antitrust approval prevents the merger from closing by Jan. 14, 2014, the per share price will increase by just over 0.6 cents per day.

When the deal was announced, Thermo Fisher CEO Marc Casper wouldn't get into specifics about the antitrust review, saying only that the company has good lawyers.

"It's obviously an area that we're very well advised," he said. "We have terrific counsel in this area. And as we look at the process going forward, we would expect to close the transaction early in 2014. And certainly we're not going to speculate on what the governments might think, but we feel good about the process going forward."

So it looks like they are modeling a very conservative timeline for MOFCOM review. The $0.06 per day payout for additional delay is a pleasant surprise. I don't see any anti trust problems with this merger.

About Me

I have a passion for the stock market. I primarily focus my research in the life sciences. I have degrees in Bio and Finance (not that it means much since investing is more of an art than a science). My MBTI personality type is ISTJ. I'm a Generation X'er and was born the year of the pig.